It gives a warning that it would overrite any modifications etc, so i tried going through USB loader GX and the game plays as normal - should i still update the Wii Console or should i continue playing the game through USB loader GX? In short im trying to figure out which is the correct procedure to follow.

Do Not update your system!
Go to priiloader and make sure you have disc updates block and online updates block.
To get in to priiloader , hold the reset button until priiloader pops up and go to system men hacks, then make those changes.
You can use that loader to play the game as well.